Lower your tax liability via Section 87A of Income Tax

Section 87A of the Indian Income Tax Act is one helpful provision in our tax laws to reduce your tax liability of person. Rebate under section 87A provides for a marginally lower payment of taxes to individuals earning an income below the specified limit. It is provided to reduce the tax burden of the lower income bracket.

Budget 2019 Update:

  1. Individual taxpayers with annual income up to ₹ 5 lakh rupees to get full tax rebate. The income limit eligible to avail tax rebate under section 87A raised to ₹ 5 lakh from ₹ 3.5 lakh.
  2. The limit of tax rebate under section 87A increased to ₹12,500 from ₹2,500. Read here the key highlights of  Budget 2019.

1. Eligibility to Claim Rebate under Section 87A FY 2019-20 (AY 2020-21)

You can claim tax rebate under this provision if you meet the following conditions:

  1. You must be a RESIDENT INDIVIDUAL; and
  2. Your Total Income, less Deductions, (under Section 80) is equal to or less than ₹ 5 lakhs.
  3. The rebate is limited to ₹12,500. This means that if the total tax payable is lower than ₹ 12,500, then that amount will be the rebate under section 87A. This rebate is applied to the total tax before adding the Education Cess (4%).

Following are a few examples of the 87A rebate allowed to Resident Individuals including Senior Citizens:

Total Income Tax payable before cess Rebate u/s 87A Tax Payable + 4% Cess
2,80,000 1,500 1,500 0
4,00,000 7,500 7,500 0
5,00,000 12,500 12,500 0
10,00,000 1,12,500 0 1,17,000

2. Eligibility to Claim Rebate under Section 87A FY 2018-19 (AY 2019-20)

You can claim tax rebate under this provision if you meet the following conditions:

  1. You must be a RESIDENT INDIVIDUAL; and
  2. Your Total Income, less Deductions, (under Section 80) is equal to or less than ₹ 3.5 lakhs.
  3. The rebate is limited to ₹ 2,500. This means that if the total tax payable is lower than ₹ 2,500, then that amount will be the rebate under section 87A. This rebate is applied to the total tax before adding the Education Cess (4%).

Following are a few examples of the 87A rebate allowed to Resident Individuals including Senior Citizens:

Total Income Tax payable before Cess Rebate u/s 87A Tax Payable + 4% Cess
2,65,000 750 750 0
2,70,000 1000 1000 0
3,00,000 2,500 2,500 0
3,50,000 5,000 2,500 2,500+100=2600

3. Eligibility to Claim Rebate Under Section 87A FY 2017-18 (AY 2018-19)

You can claim the rebate if you meet the two conditions listed below:

  1. You are a Resident individual; and
  2. Your total income, less deductions, (under Section 80) is equal to or less than ₹ 3.5 lakhs.
  3. The rebate is limited to ₹ 2,500. This means that if the total tax payable is lower than ₹ 2,500, then that amount will be your rebate under section 87A. This rebate is applied to the total tax before adding the Education Cess (3%).

Following are a few examples of the rebate allowed to Resident Individuals including Senior Citizens:

Total Income Tax payable before Cess Rebate u/s 87A Tax Payable + 3% Cess
2,65,000 750 750 0
2,70,000 1000 1000 0
3,00,000 2,500 2,500 0
3,50,000 5,000 2,500 2,500+75= 2,575

4. Frequently Asked Questions

Q. Can NRIs claim rebate under section 87A?

Ans. No, this rebate is only allowed for Resident Indians. Therefore, taxpayers qualifying as non-residents are not eligible for a rebate under 87A.

Q. Can this rebate be claimed by anyone?
Ans. This rebate is only allowed to individuals. HUFs or firms or companies cannot claim this rebate.

 

Disclaimer: Due care has been taken to draft this write-up and is intended to express the Authors understanding and to start an academic discussion on the subject discussed in above write-up. it should not be considered as professional advice. Readers are advised to refer to relevant provisions of law before applying any of the above-mentioned views. The author accepts no responsibility whatsoever and will not be liable for any losses, claims or damages which may arise because of the content of this write-up.

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